Gregory J. Reigel
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December 28, 2018

Arguing Aggravating And Mitigating Circumstances In Civil Penalty Cases

When the FAA assesses a civil penalty for regulatory violations, it is required to take into account both aggravating and mitigating circumstances when it calculates the penalty. Typically the FAA focuses on aggravating circumstances to support assessment of a higher civil penalty. On the other hand, respondents argue that mitigating circumstances are present that justify a lower civil penalty. But if the case ends up going to hearing, it then becomes the administrative law judge's ("ALJ") responsibility to decide (1) whether any aggravating or mitigating circumstances are present, and (2) how/whether those circumstances may impact the civil penalty assessed by the FAA.

As an initial matter, the FAA has the burden of justifying the amount of the civil penalty. The ALJ must then look at the totality of the circumstances surrounding the violation to determine whether the civil penalty is sufficient to serve as a deterrent to both the respondent and the industry as a whole. As guidance, the ALJ may consider the following factors the FAA is supposed to consider per FAA Order 2150.3C FAA Compliance and Enforcement Program:
  • The nature of the violation;

  • Whether the violation was inadvertent or not deliberate. This is typically a mitigating factor, and the absence of inadvertence isn't automatically an aggravating factor;

  • If the respondent is a certificate holder, the certificate holder's level of experience;

  • The attitude or "compliance disposition" of the respondent;

  • The degree of hazard posed by the violation;

  • Any action taken by an employer or other authority;

  • The respondent's use of a certificate;

  • The respondent's violation history, if any. This is only an aggravating factor. A violation-free history is expected and is not a mitigating factor;

  • Decisional law;

  • The respondent's financial ability to absorb a sanction;

  • Consistency of sanction;

  • Whether the respondent reported the violation voluntarily; and

  • What, if any, corrective action the respondent may have taken as a result of the violation.

If you are facing a proposed civil penalty or appealing an assessed civil penalty, you should definitely determine whether any of the circumstances of your situation support any of these mitigating factors and then argue those facts to the FAA or ALJ to try and reduce the civil penalty. You can find read a good example of how this works in a recent case - In re Star Helicopters.

On the other hand, if any of your circumstances could be characterized as aggravating factors, you will also want to identify those facts, because you know the FAA will. You can then determine how best to argue against and minimize the impact those aggravating circumstances may have on the civil penalty.

Posted by Greg

December 21, 2018

'Tis The Season - For Aircraft Closings

As we get to the end of the year, many aircraft purchasers and sellers are trying to get their deals closed. Whether for tax or other reasons, year end is a busy time for aircraft transactions. Many transactions are closed using escrow agents located in Oklahoma City, Oklahoma (home of the FAA Aircraft Registry). If you have never been involved in an aircraft transaction, you may wonder what happens at an aircraft closing.

In a typical (if such a thing exists) aircraft closing, here are the steps an escrow agent takes to help aircraft sellers and purchasers close a transaction once all of the necessary funds and documents are in escrow:
  • The escrow agent will pay off any liens, mortgages, security interests or other interests held by third parties against the aircraft ("Liens");

  • The escrow agent will disburse to the seller the purchase price, plus any unpaid amounts due from purchaser to seller for flight costs associated with moving the aircraft to the inspection facility or the delivery location, and less one-half of the escrow agent's fee;

  • Once the seller confirms receipt of the funds, the escrow agent (a) dates and files with the FAA releases of any Liens the FAA Aircraft Bill of Sale (FAA Form 8050-2), the Aircraft Registration Application (FAA Form 8050-1) and statement in support (for example, if the purchaser is a limited liability company); and (b) dates and releases the Warranty Bill of Sale and Assignment of Warranties and Other Rights (if applicable) out of escrow to purchaser;

  • Purchaser executes and delivers the delivery receipt to the seller which confirms the aircraft is in the delivery condition and is accepted by the purchaser;

  • If the aircraft is subject to the Capetown Convention, the escrow agent, as purchaserís professional user entity, registers the sale of the aircraft to the purchaser with the International Registry; and

  • The escrow agent, as the sellerís professional user entity, discharges any registration by seller with the International Registry of any international interest or prospective international interest registered with respect to the aircraft, and consents to the registration of the sale of the aircraft to the purchaser.

The seller and purchaser usually intend that each of these actions is interdependent with each of the others, but that upon completion they are considered to have occurred simultaneously. When all of these steps are completed, the seller delivers physical possession of the aircraft to the purchaser at the closing location.

This closing process may occur via a telephone call with all of the interested parties on the line, or simply after each of the interested parties has provided authorization (usually via e-mail) for the escrow agent to perform these steps and close the transaction. And, of course, depending upon the transaction, these steps may vary. But this is generally how the process occurs.

If you ever have questions or need assistance with a closing, I would be happy to help. And in the meantime, Happy Holidays.

Posted by Greg

December 14, 2018

Getting An Aircraft Deal Done In Spite Of A Government Shut-Down

If you have been following the news you know that, once again, a government shut-down is being used as leverage in connection with political demands. But what happens when you are trying to get an aircraft transaction closed and the government shuts down before closing? Well, when the government shut-down back in 2013 many aircraft buyers and sellers found themselves in this unenviable position. And, unfortunately, they were out of luck.

At that time, the FAA Aircraft Registration Branch (the "Registry") was closed during the shut-down. As a result, it was impossible to file aircraft bills of sale, releases, security agreements, applications for registration etc. So deals didn't get closed. And then when the shut-down ended and the Registry was re-opened it had a huge back-log of transactions to handle, which further delayed transactions while the Registry worked through the back-log. Not a good situation.

Now that we may be facing another shut-down should we be worried that deals will come to a screeching halt? Fortunately the answer to that question is "no". When the FAA Authorization was passed back in September, 2018, it included a provision that will prevent this same situation from occurring again. Section 518 of the FAA Reauthorization Act of 2018 states:
The Administrator shall designate employees of the Aircraft Registry Office in Oklahoma City, Oklahoma as excepted employees in the event of a shutdown or emergency furlough to ensure that the office remains open for the duration of the lapse in Federal Government appropriations to the Federal Aviation Administration.
As a result, even if a government shut-down occurs now, during one of the busiest times of the year for closing aircraft transactions, the Registry will remain open for accepting filing of transaction documents. So, if you are in the middle of a transaction and hoping to get it closed in the near future, fear not - the Registry will be open and waiting when it is time for you to close and file your transaction documents.

Posted by Greg

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